TWC

Notes Ng Shi Yuan

Chapter 1: Introduction to Inventions

Definitions
Invention: A scientific discovery and/or breakthrough of an idea, process or object.
Innovation: Successful commercialization of inventions.
Commercialization (Exploitation): Process of introducing an invention into the market for profit.

Function of Business Model
Innovation Business Model Value Capture/Value Creation
Value creation: To value-add the product, increase desire and interest of customers
Value capture: To collect profit from the sales of the innovation, and also from the rise in stock prices.
Types of business model:
- Current business: Develop the product within current business.
- Licensing: Authorize other company to produce the product for you.
- New venture: Setup a new business to sell the product

Degrees of Innovation

Newness to market



Completely new

New Product
products

Lines
Newness

to

company
Improvements to
Product

Line extensions
existing
p
roducts
repositioning




Cost reductions


1. New Product Line
- Example: Pizza hut selling pastas on top of their current menu of pizzas.
2. Improvement to Existing Products
- Example: New and improve shampoo formula for Dove.
3. Cost Reductions
- Example: Company cutting manufacturing cost to make product cheaper.
4. Line Extensions
- Example: Fruit Tree selling more flavors of fruit juice.
5. Product Repositioning
- Example: Toyota created Lexus, a subsidiary car brand to compete in the luxury car market.
6. Completely New Products
- Example: Sony creating the very first Walkman player.

Inventors
1. Individual (Heroic/Technical innovators)
- Reasons for innovating: For profit, fame, and/or to improve lives.
- Example: Alexander Graham Bell, Thomas Edison.
2. Corporate (Closed)
- Reasons for innovating: For profit, military purpose(s)
- Example: Apples IPhone.
3. Open

Reasons for innovating: Sharing purpose and/or development purpose.

Example: Linux OS.

Model of Diffusion

Reasons for failure of innovations
1. Failed Marketing
- Change in the market trend, failure to understand the market well
- Example: Changes in consumer and/or safety demands.
2. Old Technology
- Technology was new during invention but innovation time was too long, hence become outdated
and no longer needed by the customers
3. Limited Product Distribution
- Sale of the product did not do very well, incur losses, company is unable to recoup their costs.

Chapter 2: Types of Innovation

Forms of Innovation
1. Product Innovation (Physical, tangible object)
- Attracting customers with product novelty and technology, benefit them with product
functionality
o Using a new technology (e.g. Dysons dual cyclone vacuum)
o Re-configuring a technology (e.g. Sony Walkman)
o Better at meeting consumer needs (e.g. Workmate workbench)
o Meeting new consumer needs (e.g. JCB excavator)
2. Service Innovation (Provision of new or significantly improved service to consumers)
- New service may be result of new technology, improved service makes an existing service more
extensive and efficient
o Using a new technology (e.g. Amazon.com, First Direct)
o Better at meeting consumer needs (e.g. EasyJet, Paypal)
o Meeting new consumer needs (e.g. Facebook)
3. Process Innovation (New manufacturing process)
- Leads to great reduction in costs, increased productivity and promotes efficient allocation of
resources.
o New technologies (E.g. Pilkingtons float glass process)
o New methods/organization (E.g. F.W.Taylors scientific management, Fords moving
assembly line, Toyotas Just-in-Time production)

Types of Innovations

Components
System
Incremental
Improved
No change
Modular
New
No change
Architectural
Improved
New configuration/ architecture
Radical
New
New configuration/ architecture
Low Novelty (Incremental) ----------------> High Novelty (Radical)


1. Incremental
- A change that builds on a firms expertise in component technology within established product
architecture.
- Example: DSLRs, iPhone
2. Modular
- An innovation that changes a core design concept without changing the products architecture.
- Example: iPod (Spinning disk to flash memory), clockwork radio
3. Architectural
- leaves the core technological concepts of components intact but changes the way they are
designed to work together.
- Example: Dyson Contra-rotator washing machine (2 drums instead of 1)
4. Radical
- Radical innovation establishes a new dominant design, and hence a new set of core design
concepts embodied in components that are linked together in a new architecture.
- Example: Personal computer, digital cameras (from film cameras)

Type of Knowledge
Component: Knowledge of how each component works
System or Architectural: Knowledge of how the whole system are linked to work together

Value of Typology
Shows that innovations are not homogenous
Shows the influences of technology and technological change
Predict effects of innovations

Limitations of Typology
Method of judgment where they may be overlaps
Product-oriented: Not universally applicable for all products
Technology-oriented: Does not reflect impacts of the innovations

Chapter 3: Technological Paradigm

Introduction
Technological advancement Technological changes Innovations
Technology: Technology is the human activity which is devoted to the production of technics
[material products of human making or fabrication] or technic-related intellectual products -
whose root function is to expand the realm of practical human possibility.
Science is that form of human activity which is devoted to the production of theory-related
knowledge of material phenomena whose root function is to attain an enhanced understanding of
nature.

Long Wave Cycle
Date
Kondratiev wave/Cycle Technologies
1780-1830
First
Cotton, iron, water power
1830-1880
Second
Railways, steam power, steamship
1880-1930
Third
Electricity, chemicals, steel
1930-1980
Fourth
Cars, electronics, oil, aerospace
1980-??
Fifth
Computers, telecommunications, and the Internet

Phases of Long Wave Cycle



1. Recovery Phase
- New opportunities for investment, growth and employment
- High degree of uncertainty
- Innovations offer high novelty value (and a high price for it)
2. Prosperity phase
- Innovations and their new technologies diffuse to reach a wider market
- Imitations appear due to the bandwagon effect.
- A large number of imitators
3. Recession Phase
- Technological advancement peaks and is evident in this phase
- Price competition becomes intense
- Focus of innovation shifts, technology now used to create new production processes
- Transformative capacity of the new technology is at its greatest, dramatic improvements in
productivity
4. Depression Phase
- Market saturation leading to greater price competitions and declining profits
- Shake out phase, technological advance reaches its limits, pursuit for greater efficiency
- Discoveries, breakthroughs and inventions begin to take place
Cycle repeats

Implications of Long Wave Cycle
1. Rate of technological changes does not simply accelerate over time
- Hesitant start followed by a fast growth, subsequent saturation, then finally decline and
stagnation.
2. Diffusion of innovations is inherently uneven
- Recovery phase: only a few firms or individuals will be far-sighted enough to bring forward
innovations
- Prosperity phase: many firms will follow these successful pioneers, hoping to imitate their
successes
- Recession phase: diffusion shifts from products themselves to process innovations instead
3. Reinforces the notions of different types of innovations
- Radical innovations: more likely to occur in early phases
- Incremental innovations: more prevalent in later phases
4. Different technologies bring about different degrees of impacts
- Steam power, electricity, oil and the Internet: examples where innovations cause many changes in
the economic and social system
- Shows that some technologies are not merely important themselves, but also because of impacts
they have on wide range of industries.

5. Technologies are associated to institutional changes

- Education, training, industrial relations, corporate structures, systems of management, capital
markets and legal framework: linked to technological changes, improve lives of human and induce
growth in industries
6. Highlights the impacts of transforming technologies and costs

Technological Paradigm
New Technological Paradigm
emerges / A shift in technological
paradigm

Impacts on different parties

(Firms, consumers, government, etc.)

Impact on Consumers
Change in taste and preferences
Change in consumption patterns

Impact on firms (Situation 1)

Failure to detect shift in
paradigm
Eventually lose out in
competition in new
technological paradigm

Responds
to
consumers

Detects
consumers
behavior

Impact on Firms (Situation 3)

Detection of paradigm shifts
Production firmly wedded to
existing technology
Unable to use current new
technology
Failure to accommodate in
new technological paradigm
Eventually lose out in
competition in new
technological paradigm

Impact on Firms (Situation 2)

Detection of paradigm shifts
Change in production
patterns
Change in R&D, marketing,
skills, product support, etc. in
firms
Survives in new technological
paradigm

Chapter 4: Theories of Innovation

Theories
1. Technology S Curve




















Example: Manual type writer IBM electric type-writer Word processor Microsoft Word
Application
- By understanding where your company falls on the cycle, you can work with these patterns and
avoid obsolescence and leverage them to your strategic advantages
- Two ways to sustain profit:
o Incremental innovation (by adding minor features and functionality to create greater
variations and options)
o Bold, old and less predictable, disruptive innovation (Creating new business altogether,
jumping to a new S-curve)

2. Punctuated Equilibrium

Technological
discontinuities/breakthroughs in
technology occur from time-to-time
(New technology, radical
innovations etc)
They trigger periods of ferment
(New competing designs or
configurations)
Eventually one design or
configuration becomes dominant &
leads to stability and incremental
change
Period of stability: Only
incremental innovations
In time another
discontinuity/breakthrough occurs
and cycle is repeated

Preference of Incremental over Radical

Technological breakthroughs
- New skills, abilities and knowledge needed.
- Competence destroying since existing firms are unable to use their current knowledge and
experience which can only be used to make incremental changes
Sunk costs
- Heavy investments in old technology that are non-transferrable
Internal political constraints
- Committed to old technology
Traditions
- Hard to change old working practices

3. Dominant Design

4. Absorptive Capacity

Includes both the external dimensions of innovation and internal dimensions of innovation.
Absorptive capacity: Ability of an organization to recognize the value of new, external information,
assimilate it, and apply it to commercial ends.

Factors Affecting Firms Ability to Absorb and Assimilate
Exposure to relevant knowledge

 Presence of prior related knowledge

Diversity of experience

Contributions provided by the theories
Descriptive: An accurate account of the innovation is produced
Analytical: Can analyze why some innovations have succeeded or have failed.
Predictive: Increases the chances of success for innovators

Chapter 5: Sources of Innovation

Insights: Point where a mental act goes beyond the skill normally expected of someone trained in the
field, normally identified as the starting point of innovation

Types of Insights
Association
- Bringing together two unconnected ideas
Adaptation
- Taking an existing solution and adapting it to another use
Analogy
- Where a principle used in one context is used for a different purpose
Serendipity
- Chance, where random occurrences give rise to new insights

Source of Innovation
Individuals
- Why still going strong?
o Growth of small firm sector
o New organisational arrangements e.g. strategic alliance
o Availability of financial support e.g. business angels
o Role models
Corporations
Users
Employees
Outsiders
- A good source because:
- Provide a different perspective
o Lateral thinking, not step-by-step basis
- Not held back by inhibitions or conventional wisdom
o E.g. Photocopier (electrical method instead of chemical method)
- More willing to challenge existing assumptions
o E.g. Dyson and the manufacturers who liked making bags for vacuum cleaners
- More likely to have broad range of external contacts
o E.g. Carbon fibre, Aerospace contacts when Mclaren made first composite F1 car
- BUT Not-inventedhere syndrome in corporations (may resist using)
o E.g. Apples single button mouse
Process needs
- Demands of a manufacturing process acts as stimulus
- Where a bottleneck occurs, intense pressure builds to cure the bottleneck
o E.g Henry Fords assembly line, improvements made the manufacturing process of Pilkingtons
float glass
Spill-overs
- Where research by one firm ends up benefitting others
o E.g. VisiCalc spreadsheet
- Likely to occur imitated and produced is problematic
- May be associated with a region
o E.g. Silicon Valley

Often linked to staff mobility

o The so-called staff churn and associated knowledge mobility

Chapter 6: Process of Innovation

Innovations Arising
From big research companies: E.g. Bell Labs
From individuals: E.g. Mosaic

Models
2-D models: give the producers an idea of how the product design will look like
- Examples:
o Concept Sketching
o Drawings
o Artists Impressions
o Layouts
3-D models: checks compatibility of products before they are built, prevent problems such as lack of
space or incompatibility.
- Examples:
o Mock-ups
o White Models
o Simulations
o CAD Models

Functions of Prototypes
Evaluation and testing
Integration of components & systems
Learning
Risk Reduction

Design
Shape of the product
Tolerances of manufacturing
Materials for manufacturing
Process of manufacturing
Factors contributing to design:
- Appeal to customers (but still operating effectively)
- Production cost (affect the profits of the producers and not too expensive for consumers)
- Other demands from other functional areas of the company (Marketing, finance dept)

How to: Value Creation
Realizing the benefits the products can bring to customers
- E.g. Desktop printers: Were appreciated for its compactness and personalized benefits
Identify future customers and markets that the product can be sold in
Availability of after sales services
- E.g. AppleCare

How to: Value Capture
Outright sale
Leasing
- E.g. Xerox printers: Consumers were charged for the rent of the printers and monthly usage
Razor and Razor Blades Model
- Earning revenue from the sale of consumables

E.g. Amazon Kindle Fire Tablet e-Books which were charged at a higher price instead of the tablet
itself
** Companies need to apply the suitable mechanism according to the nature of the product.

Production Engineering
Considerations to keep costs down:
- Reducing the parts count
- Using standardised components
- Using self-aligning parts
- Using assembly operations that require a single, linear motion

Market/Pilot Testing
Mechanical Testing: To ensure that the system is working efficiently
Commercial Testing: Sales forecast, predict competitor reaction
Physical Testing: Consumers reaction to the product and receiving constructive feedback
Safety Statutory Testing: Ensure food is safe for consumption

Activities involved in Market Launch
Ensuring that retail outlets have appropriate stocks
Booking advertising space
Designing and producing advertisements
Booking exhibition space
Ensuring that literature about the product has been designed, written and printed
Informing the press and ensuring that theyve had time to familiarise themselves with the product

Rothwells 5 Models of Innovation Process
1. Technology Push
-

2.

3.

Sequential and linear: Next stage commences only after the completion of previous stage
Assumes that the marketplace is passive, adopts whatever technology is available
Example: Pharmaceutical industry
Demand Pull

Focuses on the role of market, reflects complex nature of consumers requirements
Sequential and linear
Coupling model
Consists of feedback loops
Linked to the marketplace and state of technology


4. Integrated model

5.

Different function groups (project teams) work concurrently Overlapping of work
Non-linear and non-sequential process
Network model (Open Innovation)
Facilitating factors:
- Improved communication
- Developments in ICT e.g. CAD and CAM
- Growth of strategic alliances and joint ventures
Examples
- Biotechnology
- Benetton clothing
- Medical instruments

Factors Favouring Open Innovation
The growing mobility of highly experienced and skilled people (i.e. cant keep knowledge inside)
Increased time people spend in university training (i.e. Knowledge spills over to lots of firms)
Increased availability of private Venture Capital (i.e. easier for researchers to launch own start-up
firm)

Planar Lithium
Battery
(Sony)
Interface
Controller
(Texas
Instruments)
CPU
(PortalPlayer)

iPod
(Apple)
1.8 inch
Hard Disk Drive
(Toshiba)
Digital-toAnalog
Converter
(Wolfson)

Power
Management
System
(Linear
Technologies
Inc)

Chapter 7: Process of Innovation

Intellectual Property: Protected Knowledge
Novel
Useful
Reduced to practice in a tangible form and
Managed according to law

Refer to notes

Chapter 8: Innovation Strategy

Hierarchy of Strategies

External Routes to Innovation
1. Licensing
It is normal for licensing agreement to encompass
- A royalty payment that is a percentage of the purchase price of the product, ranging between 3 to
10 percent, and
- Also a minimum level of royalty that is not a function of sales, so that the investor is at least
guaranteed some returns
2. Spin-offs
- Forms of Spin-offs

o
o
o
o

Company flotation via an initial public offering (IPO)

Management buy-out (MBO) where the company is sold to its managers
Sale to venture capitalist (VC) organisation, who will invest in expectation of later harvest
Sale to another company

Factors Leading to External Routes
Lack of resources
Lack of knowledge
Poor fit with company strategy
Lack of reach

Internal Routes to Innovation
When: First-movers & Follower
Where: Side-entrance & Derivative

1. First-Movers
- E.g. Sonys Walkman
2. Follower (Latecomers)
3. Side-entrance
- E.g. JCBs hydraulic excavators
4. Derivative
- E.g. LCD TV

Chapter 9: Technical Entrepreneurs

Entrepreneur: a person who attempts to profit by risk and initiative

Perspective of Entrepreneurship
Economic
Psychological
Behavioural/Processual

Typology of Innovator

Application Innovator
- Uses existing technology to produce complementary products
Market Innovator
- Develop new markets with existing technologies
Technology Innovators
- New technologies used in new products sold in established markets
Paradigm Innovators
- New technologies, new products and new markets

Features of Technical Entrepreneurs
The founders of the company have been affiliated with the source of technology before establishing
the company
The business idea of the company is essentially based on exploiting advanced technological
knowledge developed or acquired in a source of technology
The company is independent
The company is entrepreneurial, that is, it is controlled and managed by an entrepreneur or group of
entrepreneurs
Secondary Features: Create extensive networks (alliances, partnerships and agreements), has ability
to apply and access tacit knowledge to the creation of new products and services.
Occupational Background
Producer technical entrepreneurs (Industrial background)

Opportunist technical entrepreneurs (Technology-based background, little technical background)

User technical entrepreneurs (Background in marketing/sales or product support, have direct
contact with consumers due to their background in marketing/sales or product support)
Research technical entrepreneurs (Scientific or technical with no commercial experiences)

Factors Affecting New Venture Formation
Antecedent factors
Personality
High achiever
Independent
Control oriented

Home context
Spouse support
Few children

Parental experience
Work
environment
Frustration
Redundancy
Experience

Institutional
Support
Parents help
Venture capital
Government aid

Background
Highly educated
Prof. parent
Middle class

Environmental factors

New
Venture

Technology
Discoveries
New materials
New technology
Patents

Markets
New products
New uses
New consumers